The next big contracting scandal

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In the past few years, the government contracting industry has weathered its share of scandals.

From accusations of questionable behavior by contractors in Iraq and Afghanistan to front-page exposés of cozy relationships between contractors and customers, the industry’s reputation has suffered.

Most recently, the industry has drawn fire over allegations that at least one large business was using small businesses as fronts to funnel money to itself. (See our recent coverage of GTSI Corp.’s suspension and reinstatement by the Small Business Administration.)

Another scandal is brewing because of the proliferation of small companies owned by service-disabled veterans and procurements geared specifically for these businesses.

The potential controversy will be driven by unintended consequences of a well-intentioned law. The scandal will be born not of lawbreaking but of bending the spirit of the law.

The problems flow from two factors at the heart of how the program operates. First is the question of how you determine who is a disabled veteran. And the second is the self-certification process SBA uses.

It is on those two points that I think the system is woefully inadequate and sets itself up for embarrassment and ridicule.

If I’m reading the laws governing the program correctly, you pretty much only need to have served in a war zone to qualify. Here is question and answer No. 4 from SBA’s frequently asked questions document:

Q: “Is there a minimum disability rating to participate in the SDVOSB program?"
A: "No, there is no minimum disability rating. A veteran with a 0 to 100 percent disability rating is eligible to self-represent as a Service-Disabled Veteran for Federal contracting purposes.”

Zero, huh? That’s not much of a disability. (Read a clarification on this comment.)

The “self-represent” portion is also problematic. The program works on the honor system, and although the majority will operate honorably, there is a lot of room for abuse. The Government Accountability Office has hit on this point in a couple reports as well.

In SBA’s defense, officials do explain how a business owner can verify that he or she is disabled. But the requirement is only to have this documentation on hand in case an agency asks for verification.

The law creating this category of small business was passed in 1999, but it wasn’t until 2003 that a set-aside program was designed to direct business to those companies. Since then, there has been an explosion of companies with the “service-disabled veteran-owned” label as existing companies added the designation and new companies launched to take advantage of the new program.

Large procurements with price tags in the billions have been launched, such as the General Services Administration’s VETS contract.

When the dollars signs get big, the pressure increases to push the envelope, especially in this highly competitive government market.

I'm all for helping veterans, but when I look at this, I see conditions ripe for abuse, both intentional and inadvertent. It’s just a matter of time before the next scandal hits.